Source: www.thehindubusinessline.com

Mumbai -The global financial crisis seems to have prompted client companies to outsource IT projects of a more traditional nature as is evident from the September quarter numbers of major IT firms.

Indian IT firms have shown a significant jump in sequential revenues from the application maintenance and development (ADM) practice for the quarter ended September 30.

While ADM revenues have gone up by 13.7 per cent for Tata Consultancy Services, it has gone up by 9.8 per cent and 8.7 per cent for Infosys and Satyam respectively.

Similarly, the custom applications practice of HCL Technologies has gone up 7 per cent compared to the previous sequential quarter.

ADM has traditionally been the bread and butter business of IT companies.

And even within ADM, it is the application development part (which entails maintenance of applications already developed) that would show higher growth in the September quarter, said Mr Rishi Maheshwari, Independent IT Analyst.

“This is because volume growth has hardly been there on a quarter-on-quarter basis,” he said.

Reversal of trend

However, before the start of the US recession there was a visible trend of ADM component slowing down (as a percentage contribution to overall company revenues) because Indian companies had begun to pursue more of high-end work such as consulting services, product engineering, infrastructure management etc.

Unfortunately, analysts say that these high-end outsourcing initiatives are a part of the client’s discretionary budget, which is clearly under pressure.

“Given the volatility in the market, there is a decrease in incremental IT spending. And hence there is an increase in outsourcing contracts that entail maintenance of existing applications (or development around the existing applications) rather than transformational deals,” said Mr Ashish Basil, Partner, Transaction Advisory Services, Ernst & Young.

The migration from an old IT environment to a new IT set-up (including applications, infrastructure etc) is an example of a project that is transformational in nature.

Delays in projects

“Given the situation in the financial services space, it is fair to expect more of ADM revenues.

In the last three quarters we are seeing delays in decision making of transformational projects,” said Mr N. Chandrasekaran, Chief Operating Officer and Executive Director, TCS.

With the end of the current crisis nowhere in sight, analysts feel that the trend of increase in ADM revenues would continue in the short-to-medium term.

Moreover, all major IT companies are now focusing more on large ticket size deals (anything upwards of $75 million) which enable them to engage with a client for five years or more.

“This improves the earnings visibility for these companies. The other advantage is that long-term deals will always have a higher ADM component,” said Mr Basil.

Source: www.computing.co.uk

Rosalie Marshall - Outsourcing providers in Eastern Europe are launching a drive to target companies in the UK.

A new body called the Central and Eastern European Outsourcing Association (CEEOA) has been set up to pool resources from associated groups in the Baltics, Ukraine, Hungary, Bulgaria and Romania to increase the volume and quality of the region’s service delivery.

“Lack of international trade practice and modern business management competencies by central and east European vendors are among the factors keeping the region from realising the considerable opportunities created by globalisation,” said CEEOA.

While India, China, and the Philippines are the UK’s first-choice locations to offshore IT services, Eastern Europe is further down the list, according to the National Outsourcing Association (NOA).

NOA director Mark Kobayashi-Hillary said the new body is exactly the type of umbrella organisation the region needs.

“A single company only ever wants to achieve sales and growth,” he said. “The trade body can take a look at the bigger picture of education, training, and how the industry can improve the environment in which it operates.”

CEEOA is in discussions with the NOA to promote its vendors in the UK, according to Ukrainian Hi-Tech Initiative spokeswoman Iryna Dubenyuk. She said Poland might also join the group, which would give the organisation more weight considering the scope of Poland’s outsourcing market.

NOA chairman Martyn Hart said Eastern European firms should focus marketing efforts on specialist areas where the region can differentiate itself, such as complex financial software modelling, to overcome other potential limitations.

“They are likely to be constrained by the number of people in Eastern Europe to deploy this agenda,” he said.

“They also have a large concentration of IBM 360-type legacy hardware and people who know how such machines should be maintained.”

Source: profit.ndtv.com

The US elections are nearing D-day and the biggest question on everybody’s mind is will it or won’t it affect the business of outsourcing.

Earlier Democratic presidential candidate Barack Obama made headlines when he said that the US companies shipping jobs outside the United States must be taxed.

Obama had evidently sent a worry wave through India Inc, but now his advisor, Nelson W Cunningham, is now trying to underplay the presidential candidate’s earlier remarks, clearly putting the onus on business houses to take that final, ‘sensitive’ call.

“Outsourcing is inevitable. Jobs will go where they will be handled most efficiently. We cannot put up walls and barriers against that,” said Cunningham.

India’s software and services exports stood at nearly $40 billion during financial year 2008, with the US as its largest market. While skeptics may discount the Indo-US future trade earnings, some experts believe that the two countries are like Siamese twins, who have to engage with each other.

C K Prahalad, Paul and McCracken Professor at Ross School of Business, said,“ I think India has tremendous opportunity to become the innovation partner for the US companies. I feel it will strengthen the relationship a lot better and it’s also difficult for either India Inc or the US companies to disengage from each other.”

Meanwhile, Ron Somers, President of US-India Business Council (USIBC) said that the present condition was a dark moment in the US economy, but markets like India will pull US forward.
“India will be an anchor for the US and the slowdown will be beneficial for the Indo-US business ties,” Somers said.

If we were to believe the optimists, then it would certainly not be difficult to achieve the $50 billion target for bilateral trade between the world’s largest economic power and the largest democracy.

Source: www.chinadaily.com.cn

US software outsourcing company CSC, one of the world’s largest IT outsourcing firms, said yesterday it will launch a new delivery center in China as the global financial crisis may force more Western companies to outsource their business to the country.

Michael Laphen, chairman and chief executive officer of CSC, said the financial turbulence would force more companies to outsource their business in pursuit of lower operating costs, thus creating more opportunities for outsourcing companies.

“Outsourcing will increase in difficult times as the financial crisis pushes companies to become more cost effective,” said Laphen. “We expect further robust growth from China.”

CSC’s new delivery center, located in Tianjin, will open next spring.

It will serve both CSC’s domestic and multinational clients in China and will have 500 employees within the next three years.

But Laphen declined to say how big its investment is in the new China facility.

Although the financial crisis has had a major impact on most of the world’s economy, CSC remains optimistic about economic prospects in China.

It said the country’s manufacturing and financial companies, which are two major customers for CSC in China, will continue to grow at a rapid speed.

During the past decades, multinational have been transferring non-core business to countries like India and China to reduce costs.

But as labor costs continue to rise in China, outsourcing companies in the country have been striving to go up the supply chain and earn money with more value-added services.

Lin Zheying, deputy director of foreign investment administration department under the Ministry of Commerce, said at an industry forum on Monday that the economic turmoil provided a good opportunity for China to develop outsourcing in service sectors, as many US financial institutions may have to outsource their business.

Globally, CSC has approximately 90,000 employees and reported revenue of $17.1 billion for the 12 months ended July 4, 2008.

Source: www.ciol.com

LONDON, UK: Egypt was awarded the prestigious title of Outsourcing Destination of the Year at the National Outsourcing Association’s 2008 Awards held in London, beating rivals Philippines and Romania to the accolade.

The CEO of Egypt’s Information Technology Industry Development Agency (ITIDA) Dr. Hazem Abdelazim received the award on behalf of his government during a ceremony held at the Park Plaza Riverbank the other day, said press release.

More than 350 high-level executives and outsourcing professionals attended the event, hosted by comedian presenter Dominic Holland.

“This award recognizes the vast progress Egypt has made in the outsourcing market,” said Abdelazim. “Egypt is slowly but surely putting its mark on the map of favored global services locations.”

Abdelazim said Egypt’s young population, a large multi-lingual workforce, a solid infrastructure and a competitive cost structure is fortified by unequivocal government support, making Egypt a compelling destination for outsourcing services.

According to the judges, Egypt won the award due to its language skills, young population and growing list of global sourcing investments, the release added.

In the words of Martyn Hart, chairman of the NOA, “At the NOA we strive to raise awareness of best practice in the outsourcing industry - the awards is core to this strategy.

The awards, which are in their fifth year, aim to reward organizations for success in outsourcing projects, as well as raising awareness of the importance of best practice in outsourcing.

Recently, Egypt was praised as “by far the Middle Eastern country currently best positioned to take advantage of the boom in outsourcing” in a report by the Yankee Group, the release added.

Companies such as Vodafone, Wipro, Satyam, Teleperformance, IBM, Microsoft, SQS and Valeo have invested recently in Egypt.